Post # 1
I’m wondering how I can calculate if one has benefit over the other.
Method 1: Making an extra $150 a month payment towards the principal, every month
Method 2: Making a single lump sum payment of $1,800 every 12 months (which is the equivalent of saving $150 a month), assuming the lender does not add fees for these lump sum payments towards principal.
What I’m looking for is if either one offers more savings in the Interest over the other. I’m not sure if this is a silly question, but I just always hear people and lenders saying to make extra payments each month.
Post # 2
It depends on if you plan on paying the 1800 on day 1 or day 365. Most mortgage interest charges are calculated daily, so if you paid the 1800 now, that would be slightly better, but if you paid it this time next year, it would be worse (assuming neither option incurs charges)
Post # 3
There are a ton of mortgage calculators out there. I’d suggest you run the numbers through one and see which benefits you the most. Good job killing the mortgage though!
Post # 4
What ukbea said is true. If you pay the lump up front, it likely benefits you more than if you paid the money monthly (assuming no fees either way).
However, some people might prefer to pay extra each month if they don’t have the lump sum up front, or because it might be easier to automate monthly extra payments (you can often set up your auto-payments to include an extra amount towards the principal of the loan – check with your lender).
Another thing to consider: many lenders will allow you to pay your mortgage bi-monthly (i.e., every 2 weeks, which you can coordinate to coincide with your payday if your work pays you every 2 weeks). Because there are 26 2-week periods in a year, you’ll end up making the equivalent of 13 monthly payments during the year, with the 13th payment being applied to the principal of the loan. It’s an easy way to pay extra toward your mortage each year without impacting your monthly cash flow.